Effect of financial development on capital flows in Sub-Saharan Africa: Empirical analysis of the moderating role of institutional quality

Authors

  • Prao Yao Séraphin Alassane Ouattara University (Bouaké), Ivory Coast
  • Kouakou Kouadio Clément Felix Houphouët Boigny University of Cocody, Ivory Coast
  • Kongoza Kouassi Cyrille Alassane Ouattara University (Bouaké), Ivory Coast

Keywords:

Capital flows, Institutions, Financial development, Sub-Saharan Africa

Abstract

This study examines the role of institutional quality in the effect of financial development on capital flows in 31 sub-Saharan African countries over the period 2005-2022. To achieve our objectives, we use the generalized method of moments (GMM) and the threshold dynamic panel model with endogeneity. The GMM results indicate that financial development has a negative and significant effect on FDI. However, it promotes FDI inflows in a strong institutional framework. It stimulates remittances, but its effect is amplified when countries have good institutions. It also promotes official development assistance, but its influence becomes negative when accompanied by a strong institutional framework. Furthermore, the results of the dynamic threshold model estimation reveal that the positive effect of financial development on FDI only manifests itself when the quality of institutions exceeds the threshold of -0.914, and its positive effect on remittances becomes more pronounced when the quality of institutions exceeds the threshold of 0.177. Its negative effect on aid is only observed when the quality of institutions exceeds the threshold of -0.475. These results support the idea that strengthening the institutional framework and financial development policies can help countries in the region attract more FDI and migrant remittances, while reducing their dependence on official development assistance.

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Published

2025-10-09

How to Cite

Prao, Y. S., Kouakou, K. C., & Kongoza, K. C. (2025). Effect of financial development on capital flows in Sub-Saharan Africa: Empirical analysis of the moderating role of institutional quality. International Journal of Economic Perspectives, 19(10), 33–53. Retrieved from http://ijeponline.org/index.php/journal/article/view/1174

Issue

Vol. 19 No. 10 (2025)

Section

Peer Review Articles
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Copyright (c) 2025 prao Yao Séraphin, Kouadio Clément KOUAKOU , Kouassi Cyrille KONGOZA

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